What is the Seed Enterprise Investment Scheme?
The Government want to encourage enterprise and the creation of new high risk businesses for many of whom finding external funding may be difficult from the more usual sources. Specifically they are looking at companies which are unlisted and have fewer than fifty staff and gross assets of under £200,000. The maximum you can invest is £100,000 in any year.
So what about tax reliefs?
Income Tax Relief at 50% on your qualifying investment, so invest £10,000 and you can get back £5,000 from the tax man. You have to have paid that tax in the year, somewhere so effectively your tax bill is reduced.
Capital Gains Tax Relief – No capital gains tax to pay on gains made on the investment whatsoever, but make a loss and you can claim that in the normal way.
Capital Gains Tax Reinvestment Relief. If you have made a chargeable capital gain in a year and you want to mitigate the tax on that you can reinvest the gain and get tax relief on 50% of the gain reinvested – in addition to the other tax reliefs.
Inheritance Tax Business Property relief. – Shares in SEIS Companies qualify for 100% Business Property Relief – so your estate escapes a potential 40% tax charge when you die.
Let’s look at an example of the potential tax reliefs you could obtain:
A taxpayer invests £10,000 under the Seed EIS relief and has a chargeable gain he can reinvest rather than pay Capital Gains Tax at 28%.
|
Rate of Tax |
20% |
40% |
45% |
|
Income Tax Relief |
5000 |
5000 |
5000 |
|
CGT Reinvest Relief |
1400 |
1400 |
1400 |
|
Loss Relief (Gain/Income) |
1400 |
2000 |
2250 |
|
Total All Reliefs |
7800 |
8400 |
8650 |
|
Net Cost of Investment |
2200 |
1600 |
1350 |
|
Effective Rate of Relief |
78% |
84% |
86.5% |
*The Inheritance effect is not factored in to the above
The actual exposure of the taxpayer in these circumstances is relatively small, but dependent on their personal circumstances. If our taxpayer in the example only qualified for 50% relief, it is still a very generous relief and immediately halves the investor’s exposure.
At Aston Shaw we have both investors looking for potential businesses to invest in under the scheme and businesses seeking to raise finance under this initiative.
For more information contact Philip Hunt (philip.hunt@astonshaw.co.uk) or Mark Noakes (mark.noakes@astonshaw.co.uk) or to call your nearest office, visit our contact page.
